Trade Wars: China Strikes Back

On April 3, the Office of the U.S. Trade Representative released a list of Chinese products that could be targeted under the Trump administration’s Section 301 investigation, meant as a response to Chinese theft of U.S. intellectual property. That list provided a more concrete picture of how Washington will implement President Donald Trump’s announcement that $50 billion in Chinese imports would be hit with tariffs.

In response, on April 4, China unveiled its own list of U.S. imports – also worth $50 billion – that would be subject to tariffs. The proposed Chinese tariffs are centered on agricultural goods, including “soybeans, corn, beef, orange juice and tobacco,” Xinhua reports. Automobiles and aircraft, also major U.S. exports to China, are targeted as well. The Chinese response mirrors the USTR announcement in the level of tariffs to be imposed, at 25 percent.

Prior to the announcement, China had not been coy about its intention to respond in kind to any negative trade measures implemented by the Trump administration. “We keep reiterating that China won’t initiate a trade war, and a trade war is the last thing we want. However, we will not be afraid of it,” Foreign Ministry spokesperson Geng Shuang told reporters at a regular press briefing on April 3. “If someone is bent on waging it and even closing in on our doorstep, then we will keep them company and let’s see who [will] last to the end.”

On Wednesday, hours ahead of the unveiling of China’s tariff list, Geng promised that “China will take proportionate measures of the same intensity and scale on U.S. products.”

Chinese officials have also said they will file cases against the U.S. tariffs at the World Trade Organization, but it will take years for any complaints (by either side) to wind their way through the WTO’s dispute resolution process – and even longer for any potential judgments to be implemented. In the meantime, China has decided a tit-for-tat response is its best bet.

While the total value of targeted products is the same – $50 billion on each side – the impact is different. According to U.S. government data, last year the United States imported $505 billion worth of goods from China, meaning the tariffs would affect only 10 percent of Chinese imports. Meanwhile, China imported $130 billion worth of goods from the United States – so the $50 billion targeted for tariffs is over one-third of total U.S. exports to China. According to the USTR, U.S. agricultural exports to China were worth $21 billion in 2016, accounting for 18 percent of total U.S. goods exports to China that year.

That will obviously have a sizable impact on the U.S. industries involved, particularly the agricultural industry. That may be designed to send a political message: The central United States, the country’s breadbasket, is a Republican-dominated area, meaning the Trump administration’s core supporters will feel the direct impact of the impending trade war.

According to a 2017 report by the U.S.-China Business Council, “oilseeds and grains” (in practice, largely soybeans, a major target of the Chinese tariffs) accounted for more U.S. exports to China than any other category, with a value of $15 billion in 2016. Of that, at least $10.4 billion (over two-thirds) was grown in states that voted for Donald Trump in the 2016 presidential election. And that category doesn’t account for all the agricultural products that will be targeted. For example, pork and beef exports will also be hit with tariffs; meat products exported from red states to China were worth over $850 million in 2016.

Meanwhile, however, China will have to come up with alternative sources for its agricultural imports – no mean feat. U.S. soybeans, for example, account for over a third of China’s total soybean imports. That was used by Chinese officials to justify the tariffs – “the export amount to China was ‘too big,’” Xinhua cited a Finance Ministry official as saying – but it also speaks to Chinese reliance on U.S. supply. If China and the United States go ahead with their planned tariffs, there will be self-inflicted pain on both sides.

Neither set of tariffs will take place immediately. USTR’s proposed list will be open for public comment during the review process, which won’t be completed until May. China’s tariffs, meanwhile, will be imposed when U.S. tariffs take effect: “The date of implementation will depend on when the U.S. government imposes the tariffs on Chinese products,” the Chinese Ministry of Finance said in its announcement. That leaves time for negotiations.

Previous talks have led nowhere, but the looming tariffs could provide an incentive for long-awaited breakthroughs.